2 Renewable Energy Feed-in-Tariff System Design and Experience in Taiwan

Facing climate change, energy dependency and energy security and other significant environmental challenges, many countries try to seek environmental sustainability, promote a green new deal, and develop renewable energy. IPCC (2011) found that building a lowcarbon city, developing low-carbon industry and promoting low-carbon life are the major means for most countries to achieve a low-carbon society.


Introduction
Facing climate change, energy dependency and energy security and other significant environmental challenges, many countries try to seek environmental sustainability, promote a green new deal, and develop renewable energy.IPCC (2011) found that building a lowcarbon city, developing low-carbon industry and promoting low-carbon life are the major means for most countries to achieve a low-carbon society.
The major renewable energy sources include solar energy, wind power, biomass, geothermal, hydro power et al.REN21 (2011) Renewables 2011 Global Status Report indicated that in 2009 global renewable energy sources supplied 16% of global final energy consumption.In 2011 additional investments of renewable energy in the world were US$211 billion and the top 5 new capacity investment countries were China, Germany, the United States, Italy, and Brazil, respectively.In terms of new investment in types of energy, China was among the top-ranking countries in wind power and solar heat; Germany was at the top in solar photovoltaic and biodiesel production sources, and the United States was tops in ethanol production.
In 2010 the worldwide total renewable energy capacity was 1,320 gigawatts (GW), and the largest 3 types of renewable energy capacity (REC) were hydro power 1,010 GW, wind power, 198GW and the energy PV 40GW.The top 5 countries of REC were China, the United States, Canada, Brazil, and Germany/India.China was ranked at the top in capacity of wind power and solar heat; the United States was ranked first in biomass and geothermal power, and Germany was number one in solar PV (REN21 2011).
In recent years the two most important renewable energy tools in the European Union (EU) have been the Feed-in Tariff (FIT) and the Quota/TGC (a quota regulation in combination with a tradable green certificate).Twenty out of twenty-seven EU member nations are using FIT as their main renewable energy tool (Klein, et al., 2008).Table 1 reveals that no matter the extent of economic growth or national income distribution, all countries in the world promote an FIT policy to deal with the impact of environmental change (REN21, 2011).Taiwan is located in a sub-tropical area with abundant sunshine, surrounded by seas with strong wind power and ample currents; therefore, the island is suitable for developing renewable energy (Bureau of Energy, Ministry of Economic Affairs, 2009).Taiwan has implemented an FIT policy since 2009.The purpose of the policy is not only to develop renewable energy aggressively, but also to save energy, reduce carbon emissions as well as ease the threat of excessive dependency on energy imports.
A renewable FIT policy focuses on two objectives: an Access Objective and a Price Objective (PACT, 2011).The Access Objective implies that the local power company that uses renewable energy power generation equipment to produce electricity and operate a power grid shall have the obligation to provide parallel connections and wholesale rates.The system design focuses on ensuring a connection to the grid, extending and reinforcing the grid and sharing reasonable costs.The Price Objective emphasizes setting a tariff at a reasonable level, guaranteeing a price for a designated period of time, and offering a reasonable return on investment.The system focuses on a tariff (price), a wholesale period and a wholesale rate, and an adjustable mechanism are very important, too This chapter attempts to analyze the renewable energy FIT system design and practice in Taiwan.First, the chapter indicates the present status of energy consumption and supply in Taiwan; then it introduces Taiwan's Renewable Energy Development Law (REDL); a discussion of the financial mechanism of the FIT in Taiwan follows; finally, we examine the effectiveness of Taiwan's FIT.In the meantime, we also want to introduce Taiwan's FIT model to members of the international academic community who are interested in related topics.

Electricity Rate Adjustment
In order to reflect power generating and purchasing cost and the fluctuation of international electricity prices in a timely manner, the Ministry of Economic Affairs (MOEA) approved "Taipower Electricity Price and Fuel Mechanism" (TEPFM) of Taipower.The mechanism stipulates that the all basic electricity price rates shall be based on the rate as of October 1, 2008.The mechanism also allows Taipower to adjust the price when the average unit cost of fossil fuels (gas, coal, and oil fuel) changes and the electricity price could follow accordingly.
Taipower also needs to publicly announce "the actual weight average fuel cost per KW" and "the relative weight average fuel cost per kWh" on a quarterly basis and file a report with the MOEA.According to TEPFM, the time to initiate an electricity price adjustment is as follows: when an absolute dollar amount per kWh electricity cost has grown (decreased) more than 1 percent of the average electricity selling price per kWh of the first half year average, then Taipower could initiate the price adjustment mechanism which allows Taipower to add (deduct) "a fuel adjustment unit cost per kWh " to the basic electricity rate.
If it is less than 1 percent of "the average electricity selling price per kWh" of the first half year average then the addition (deduction) shall be canceled.The REDL denotes the total capacity of renewable energy power generation equipment, the target percentage of all types of renewable energy, the power connection and cost allocation of the power industry, the setting of wholesale prices, and the creation of a price-adjusting mechanism.Therefore, the core strategy of REDL is a Feed-in-Tariff system.

Item
First, regarding the promotion of renewable energy, the government shall make steady growth on the installation of renewable energy power generation equipment.The government (MOEA) shall consider the climate and environmental factors, the characteristics of electricity demand and the economic benefits, and the stability of the power supply, while at the same time considering each type of renewable energy development potential, the economic benefits, and key technologies.The government also needs to set promotion goals and the percentage of each category every two years.Taiwan sets the reward capacity for renewable energy power generation equipment as the total capacity between 6,500,000 KW and 10,000,000 KW (Article 4, Article 6).
Second, regarding the executing level of renewable energy, the energy generated by renewable energy power equipment related to power parallel connections, wholesale obligations, and cost sharing shall be interrelated and sold at a wholesale rate by the local power company.The local company shall provide a stable grid and reasonable costs as well.
Beyond the existing lines, the cost of installing enhanced power grids is shared by the power company and the operator of the renewable energy power generation equipment.The lines connecting the renewable energy power generation equipment and the power grids shall be built, installed and maintained by the operator of the renewable energy power generation equipment; if necessary, the power company with parallel connection to the power generation equipment shall provide any required assistance; the incurred cost shall be paid by the operator of the renewable energy power generation equipment (Article 8).
Third, regarding the source of the fund, Taiwan's government oversees the renewable energy development fund providing and usage.The power company or the institution operating the self-owned power generation equipment that reaches a certain level of capacity shall pay a certain amount into a fund according to the non-renewable energy portion of the total power generation and the fund is used for renewable energy development.The fund is to be used as follows: to provide subsidies for electricity generation from renewable energy; subsidies for equipment to generate renewable energy, and subsidies for the demonstration of renewable energy and promotion of its use.
The fund-providing subjects includes the power company and the institution that installs the self-owned power generation equipment with certain capacity and has paid the fee to the fund; it may add the paid amount to the selling price of the electricity after approved by the government (Article 7).
In 2011the total budget of renewable energy development fund was NT $2,098,832 thousands.The budget usage of the fund stipulates that the establishment of a data fund on renewable energy basic power generation equipment, renewable energy fund collection and subsides of operators, and renewable energy wholesale price research, et al., were 37,000 thousands; funds for renewable energy usage demonstration and promotion were NT $580,000 thousands, renewable energy subsidies were NT $675,000 thousands, and general administration funds were NT $6,432 thousands (

The Renewable energy wholesale rate examination commission
The government invites representatives of each ministry, and scholars and experts from private institutions to form a commission to examine wholesale rates and the calculation formula for the electricity generated by the renewable energy power generation equipment.If necessary, it shall follow the Administrative Procedure Act to hold hearings and make public announcements; it shall review and revise the rate and the calculation formula every year with respect to advances in power-generating technology, cost variation, progress in reaching goals, and other relevant factors for each category of renewable energy.The above formula for calculating rates is determined by the government, taking into account average installation costs, maximum operating life, annual power generation capacity and other relevant factors of power generation equipment for each category of renewable energy on an individual basis.To encourage and promote pollution-free green energy and increase investment in renewable energy, the wholesale purchase rate shall not be lower than the average cost of the generation of domestic fossil fuels (Article 9).

Formula for the wholesale rates of renewable energy
According to an announcement made by the Bureau of Energy, Ministry of Economic Affairs, the formula for the wholesale rates of renewable energy is based on all kinds of factors, including installation costs, operating years, maintenance costs, annual power generation capacity, capital cost rate, and reasonable profit rates.The rates are set by the nature of the individual sources such as wind power, river-type hydraulic, geothermal energy, biomass energy, waste, and solar energy, respectively.The rates are effective from January 1st 2011 to December 31st 2011.Starting from 2011 any electricity from new renewable energy power generators will be purchased at this rate for 20 years.In 2011 the reasonable profit rate is 5.25%.Table 9 states the formula for the rates renewable energy.
Table 9. Formula for renewable energy wholesale rates

Wholesale rates
The present renewable energy strategies in Taiwan include those for the short run and the long run.The short-term strategy is to prioritize land-based wind power electricity, which has a relatively mature technology and higher economic benefits.The long-term strategy is to encourage the development of offshore wind power electricity."The wind power generation equipment" can be classified as an offshore wind power system and a land-based wind power system.The offshore wind power rate is 5.5626 NT$ per KWh.Land-based wind power can be divided into two levels: 1 KW to 10 KW and 10 KW and up and the wholesale rates are NT $7.35/KWh and NT $2.61/KWh, respectively.The cost of solar photovoltaic electricity generation is much higher than the cost of other sources of renewable energy.Solar photovoltaic generation equipment can be divided into rooftop and ground-mounted.Considering the utility of public land as well as the limited resources of Taiwan, the government has prioritized the development of rooftop solar photovoltaic generation rather than ground-mounted equipment.Residents are encouraged to establish a solar photovoltaic system that can generate from 1 KW to 10 KW of electricity.Rooftop models can be set at 4 different levels: 1 KWto 10 KW, 10 KWto 100 KW, 100 KWto 500 KW, and 500 KW and up.The wholesale rates are NT $ 10.3185/ KWh, NT $9.1799/ KWh, NT $8.8241/ KWh, and NT $ 7.3297/KWh, respectively.Table 9 indicates the 2011 wholesale rates for solar photovoltaic generation equipment.

Solar photovoltaic bidding mechanism
In order to encourage residents to implement solar photovoltaic generating systems, in 2011the house owners could install a rooftop solar photovoltaic system that generates from 1 KW to 10KW with the wholesale rates on a first come, first served basis at the completion rate and no need to go through the bidding process.Those interested in other types of solar photovoltaic systems are required to go through the bidding process.

The Structure of Renewable Energy Capacity
Currently, the type of renewable energy in Taiwan with the largest capacity is a river-type hydraulic generator.Taipower and private companies generate 197.5 MW.Biomass ranked number 2 and generated 80.94 MW.This is followed by wind power at 52.93 MW and solar photovoltaic power at 4.48 MW, respectively.The solar photovoltaic system generated 1.1 MW before the renewable energy development law was passed.After the law was passed the capacity was increased to a range from 2.08 MW to 3.13 MW.In June 2011 the total capacity of renewable energy was 336 MW which comprises 6.9% of total power capacity.Table 15 illustrates the capacity generated from each type of renewable energy source.

Conclusion and Recommendations for Taiwan's Feed-in Tariff
Designing a reasonable wholesale rate is the most important issue with respect to a renewable energy feed-in tariff system.One must consider average installation cost, operating life, maintenance cost, annual power generation capacity and relevant factors for different types of power generation equipment separately and set wholesale rates for each category of the renewable energy so that the price not only can ensure an optimal developing opportunity for each type of renewable energy,; one also can reduce the incentive of higher profitable technologies and avoid shifting a heavy cost burden to consumers (Chou, Lin and Chen 2010).To arrive at a reasonable wholesale rate, one also needs to consider size and location.Different locations and sizes generate different electricity costs so and command different wholesale rates.The larger the size is, the more economical the scale.Generating equipment of a larger size has lower average electricity production costs.Therefore, in order to ensure adequate profits, renewable energy generating www.intechopen.comequipment of a larger capacity should be paired with a diminishing marginal rate.One location might have greater wind power; therefore, when a wind power generator is landbased or offshore, different costs different capacities of electricity ensue.Usually, the government assigns a higher wholesale rate to a priority location to increase incentives to produce more renewable energy.
The present renewable energy strategies in Taiwan include those for the short run and the long run.The short-term strategy prioritizes land-based wind power electricity, because the technology is relatively mature and the economic benefits are higher.The long-term strategy is to encourage the development of offshore wind power electricity.In terms of solar photovoltaic sources, when one considers the total utilization of land and the limited land resources of the nation, Taiwan prioritizes rooftop solar photovoltaic systems and discourages the implementation of ground-mounted systems.A resident owner who installs a rooftop solar photovoltaic system with a capacity from 1 KW to 10 KW qualifies for a priority subsidy and the highest wholesale rate.
The "wholesale rate guarantee period" is another important design feature.The longer the guarantee period is, the lower the investment risk is.The length of wholesale rate is determined by the time of the return on investment, the operating life of renewable energy equipment,, equipment renewal speed, and loan provisions.In Taiwan there is a guarantee period of twenty years for those who are already in the system and for whom the risk is low.The FIT price is reexamined every year; however, for those who have not entered the system the risk is high.Therefore, Taiwan publically discloses the FIT electricity price every year so that the public can examine and discuss the rate.
In order to create an environment capable of developing competitive renewable energy sources, the government provides incentive mechanisms such as capital subsidies, investment tax credits, et al. (REN21, 2011).Capital subsidies refer to government subsidies awarded to those who install renewable energy systems to reduce their capital burden and increase investment opportunities.Investment tax credits means the government permits investors to deduct their investment in renewable energy equipment from their tax liabilities to lower the investors' tax burden.Furthermore, an energy tax is another means for supporting such measures.An energy tax is imposed on those using traditional fossil fuels that increase greenhouse gases.The tax may force investors to internalize the social costs which lower the cost of the renewable energy and allow consumers to choose from different sources of renewable energy.Taiwan's government has also set regulations for renewable energy subsidies regulation and implemented a renewable energy tax credit act.However, the energy tax in Taiwan has not been passed; the bill still needs to be negotiated.In the future, the burden of energy costs need to be fairly distributed and the rights of socially vulnerable groups should be protected.
By all accounts, renewable energy FIT can bring about environmental, economic, and social benefits, and can promote the renewable-energy industry as well.By applying REDL, Taiwan is going to initiate a new opportunity of renewable energy investment and is moving toward the creation of a low-carbon society. www.intechopen.com (PACT 2011, Mendonça, Jacobs and Sovacool, 2010, and Chou, Lin, and Chen 2010) Source: REN21 (2011), Renewables 2011: global status report, http://www.ren21.net/Taiwan started to provide Feed-in-Tariff countries in 2009.Table 1.Feed-In Tariff Countries

Table 2 .
Economic Indicators for Energy

Table 6
shows the energy efficiency indicators of Taiwan from 1990 to 2010.Taiwan's Energy productivity (Real GDP / Domestic Energy Consumption) in 1990 was NT $104 /LOE, and in 2010 the number increased to NT $118 /LOE.The energy intensity of Taiwan (Domestic Energy Consumption / Real GDP) was 9.95 LOE/ NT $1,000 in 1990, and in 2010 the number went up to 8.46 LOE/ NT $1,000.Per capita electricity consumption in 1990 was 4,193 KWh and in 2010 the number increased to 10,312 KWh.The average electricity price was NT $2.1636 / KWh in 1990 and the price went up to NT $2.6098 / KWh (Bureau of Energy, Ministry of Economic Affairs 2010).The numbers indicate that energy efficiency in Taiwan increased from 1990 to 2010 gradually.
Source: Bureau of Energy, Ministry of Economic Affairs (2010).Table6.Energy Efficiency Indicators Table7illustrates Taiwan's energy security indicators.Taiwan's dependence on imported energy in 1990 was 96%; the value of energy imports to the value of total imports was 11.45%; the value of energy imports to GDP was 3.8%; dependency on imports oil was 99.43%, and the amount of per capita energy imports was NT $8,328.In 2010 those numbers increased to 99.3%, 20.06%, 11.74%, 99.97%, and NT $69,317, respectively.
The consumer price index, representing living expenses, was 74.49% in 1990 and 105.48% in 2010, and the growth rate was 41.60%.The above comparison indicates that the range of electricity price increases is much narrower than those of national income per capital and the consumer price index.Therefore, whether the electricity price is fully reflected in energy costs and whether the external costs are reasonably internalized will affect the relative price, using the motivation of renewable energy as well as the willingness to invest in renewable energy equipment.improvingenergy consumption and transformation efficiency.High valueadded means increasing the incremental value of energy usage.Low emissions means adopting energy supply methods and consumption practices that ensure low-carbon emissions and low pollution.Low dependency means decreasing Taiwan's dependence on fossil fuels and imported energy.The framework for the policy is "Clean and Reducing" and developing a carbon-free energy and extending the potential usage of renewable energy, so that in 2025 clean energy sources can reach 8% and more of the total energy supply.Therefore, the policy of renewable energy development and promotion is consistent with our expectations.In order to systematically promote renewable energy, in August of 2002, the Executive Yuan submitted the "Renewable Energy Development Law (REDL)" to the Legislative Yuan, where it remained for 7 years.In June 2009 the Legislative Yuan finally passed the act, which was promulgated by the ROC President in July 2009.The "Renewable Energy Development Law" is comprised of 23 articles and was enacted to promote the utilization of renewable energy sources, increase energy diversification, improve environment quality, energize the industry and drive national sustainable development.(Article 1) Source: Bureau of Energy, Ministry of Economic Affairs (2010).Table 7. Energy Security IndicatorsAfter analyzing the range of Taiwan electricity price adjustments, in 1990 the average price per kWh was NT$2.1636; in 2010, the average price per kWh was NT$2.1636 and the growth rate was 20.62%.During the same period, the national income per capita, representing economic ability, was US$7,628 in 1990, and US$16,432 in 2010, and the growth rate was 115.41%.www.intechopen.comefficiency means

Table 10 .
2011 Renewable Energy Power (except solar power) Wholesale Rate

Table 13 .
The First Period of 2011 Discount Rates for Solar Photovoltaic Generators Table 14 lists the 2011 bidding results for solar photovoltaic generators.According to the table, for the second period the number of applications and winning bids as well as bidding capacity all dramatically increased from the first period.Since the policy encouraged rooftop systems and restricted the ground-mounted version, the number of rooftop systems is far greater than ground-mounted systems.